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Congressman Peter DeFazio

Representing the 4th District of OREGON

Rep. Peter DeFazio Urges President Trump to Bring a WTO Challenge against OPEC for Illegal Oil Production Limits

Jan 25, 2017
Press Release

Rep. Peter DeFazio (D-OR) today sent a letter to President Trump urging him to file a trade dispute with the World Trade Organization (WTO) against the Organization of Petroleum Exporting Countries (OPEC) for manipulating oil production.

For decades, OPEC has consistently manipulated the supply and price of oil, colluding to establish production levels in order to control prices in the world market. For the past twenty years Rep. DeFazio has asked the sitting President to bring a WTO dispute against OPEC member nations for these manipulations.

“I share President Trump’s commitment to strengthening America’s position in the global economy by negotiating fairer trade deals,” said Rep. DeFazio. “By challenging the OPEC’s unfair collusion to manipulate oil production, President Trump has an opportunity to not only make good on his campaign promises, but break from the tradition of previous presidents and take a stand on a critical trade issue that costs the U.S. economy billions of dollars. I am urging the Trump administration to stand up for American consumers and businesses that are being gouged by OPEC.”

OPEC’s most recent collusion occurred in November 2016, where OPEC and non-OPEC nations agreed to decrease production by 1.8 million barrels per day, effective January 1, 2017, in order to keep the price of oil at artificially high levels. Since that meeting, the countries have made significant progress in limiting output, already having reduced production by 1.5 million barrels per day. 

Under Article XI of the General Agreement on Tariffs and Trade (GATT), member countries are prohibited from using anything other than “duties, taxes or other charges,” to limit imports or exports across their borders. Oil production quotas clearly violate this statute.

The text of the letter to President Trump is below:

 

The Honorable Donald J. Trump

President

1600 Pennsylvania Avenue, N.W.

Washington, D.C. 20500

 

 

Dear President Trump:

 

I commend you and your administration for your commitment to improving and renegotiating unfair trade agreements, including rules required under membership in the World Trade Organization (WTO). 

 

Since 2009, twenty-three complaints have been filed by the United States at the WTO.  During that time the United States has won every dispute that has been decided.  The United States successfully challenged cases such as illegal Chinese taxes on steel, EU subsidies to Airbus, China’s illegal taxes on autos and SUVs, and India’s illegal ban on U.S. poultry. 

 

However, President Obama, like every other president I have asked over the past 20 years, failed to bring a WTO dispute against members of the Organization of Petroleum Exporting Countries (OPEC) for manipulating the supply and price of oil at the expense of U.S. consumers and our economy. According to the U.S. Energy Information Administration, gasoline prices have risen 12 cents per gallon since December 5, 2016, and as OPEC continues to cut production gas prices could rise further.  That is why I write to you with urgency and request that you stand up for American workers and consumers by initiating a WTO dispute.

 

OPEC has willfully violated WTO rules for decades.  The cartel has and does collude to establish production levels to limit global support and maintain artificially high prices.  Most recently, during the November 2016 OPEC meeting in Vienna, OPEC and non-OPEC nations agreed to decrease production by 1.8 million barrels per day, effective January 1, 2017, in order to keep the price of oil at artificially high levels and undermine America’s rebounding economy. On January 22, 2017, the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) had its inaugural meeting Vienna.  The JMMC is tasked with ensuring output reduction targets set during the November 2016 meeting are met.  The Committee found that countries have made strong progress in limiting output, already having reduced production by 1.5 million barrels per day. 

The U.S. does not have to sit idly by while OPEC manipulates the supply and price of oil.  The U.S. can and should bring a dispute to the WTO against members of OPEC for illegal market manipulation and price fixing. 

I urge you to continue the momentum you have built with the American people in protecting American jobs by filing a WTO complaint against OPEC for violating the General Elimination of Quantitative Restrictions, otherwise known as Article XI of the original General Agreement on Tariffs and Trade (GATT). I believe there is a strong legal basis for the U.S. to pursue this trade complaint. The article states:

“No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.” [emphasis added]

In other words, colluding to set production levels violate WTO rules, specifically Article XI. And this is precisely the purpose of OPEC.

The precise meaning of this provision is fleshed out in a 1988 GATT Panel Report on “Japan - Trade in Semi-conductors.”  The Panel noted:

 

“...this wording (in Article XI) was comprehensive: it applied to all measures instituted or maintained by a contracting party prohibiting or restricting the importation, exportation or sale for export of products other than measures that take the form of duties, taxes, or other charges. This wording indicated clearly that any measure instituted or maintained by a contracting party which restricted the exportation or sale for export of products was covered by this provision, irrespective of the legal status of the measure.” 

 

The 1988 GATT panel report clarifies that only duties, taxes or other charges are allowable, not pacts among countries to limit production of a product for export.  The oil production quotas devised by OPEC clearly qualify as a “quantitative restriction.”

Finally, I bring your attention to Article XX, which sets out a series of broad exceptions to Article XI.  Article XX notes that none of the exceptions are valid if they are “applied in a manner which would constitute... a disguised restriction on international trade."  Therefore, the broad exception in Article XX that allows restrictions for the "conservation of exhaustible natural resources" would not protect OPEC's market manipulation because OPEC is not restricting oil production due to conservation concerns or to preserve an exhaustible supply. Rather, OPEC is restricting supply solely in order to influence world oil prices which clearly qualifies as a "disguised restriction on international trade."

Of the thirteen OPEC countries, nine are members of the WTO (Angola, Ecuador, Gabon, Kuwait, Nigeria, Qatar, Saudi Arabia, UAE, and Venezuela). Therefore, filing a case could have a widespread impact.

It is no secret that you and I share strong reservations about the WTO.  However, as long as we are a member, we should use its rules to benefit U.S. consumers and companies.

Mr. President, given your administration’s commitment to enforcing trade laws and your personal commitment to protecting American consumers, jobs and industries, I respectfully ask that you order the U.S. Trade Representative to file a WTO complaint against OPEC member countries. 

Thank you in advance for your prompt attention to this request.

 

Sincerely,

 

Peter A. DeFazio
Member of Congress

 

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